Utility Week

UTILITY WEEK | OCTOBER 2022 | 11 Energy T he government will need to take a "robust stance" when setting the terms of its planned Contracts for Di erence (CfD) expansion if the move is to deliver a genuine reduction in wholesale power prices, one of its initial proponents has stated. Rob Gross, a director at the UK Energy Research Centre (UKERC), was respond- ing to criticism of the measure, which was unveiled alongside the Energy Price Guaran- tee. Announcing the expansion, new prime minister Liz Truss said existing nuclear and renewable generators would be shi† ed on to CfDs to "end the situation where electricity prices are set by the marginal price of gas". "This means generators will receive a fair price, re‡ ecting their cost of production, fur- ther bringing down the cost of this genera- tion," she added. Back in April, UKERC issued a discus- sion paper suggesting that wholesale power prices could be reduced by o ering existing renewable and nuclear generators with- out CfDs the chance to bid for the contracts in a "pot zero" auction. The paper argued that generators would be willing to forgo the current sky-high power prices and any additional subsidies through the Renewa- bles Obligation (RO) scheme in exchange for long-term certainty over their revenues pro- vided by the contracts. In August, the industry trade bodies Energy UK and Renewable UK both gave their backing to a version of the proposals. Energy UK said an expansion of the CfD scheme would be signi‹ cantly better than a "damaging" windfall tax on non-gas genera- tors, which Truss has ruled out. However, the proposals have faced push- back, with Labour's shadow climate change secretary Ed Miliband saying such a meas- ure would "lock in massive windfall pro‹ ts" and o er a "terrible deal" for billpayers. Other critics had warned the government was in an "incredibly weak" negotiating posi- tion and that keeping a windfall tax on the table would have strengthened their hand. Gross, a professor of energy policy and technology at Imperial College London and lead author of the UKERC paper in April, told Utility Week the success of the scheme would depend on the exact details "and we don't really have any detail at the moment". The government has not yet said how it plans to move existing generators on to CfDs, including whether the scheme will be volun- tary, as proposed by Energy UK. "I think it's right to point out that if not handled properly, there's the risk that this doesn't deliver very quickly and it doesn't deliver very e ectively," said Gross, adding that the government would need to take a "robust stance". He agreed that "it's not a great negotiat- ing tactic" to remove the threat of a windfall tax but said this doesn't mean the govern- ment is in a weak position. "I think both par- ties to the negotiation would be cognisant of the fact an element of compulsion could fol- low if a voluntary approach doesn't deliver," he said. Gross emphasised the value of revenue stability to generators, which could make the contracts attractive "even at a relatively low price". The UKERC paper argued that this certainty would allow generators to re‹ - nance their projects, lowering their costs. He also questioned how else the govern- ment could deal with the issue, saying wind- fall taxes are not a "panacea", partly because it's not clear where windfalls have accrued between generators, traders and suppliers. Tom Grimwood, news editor Government must take 'robust stance' on CfD expansion Energy Price Guarantee will be opaque for tenants on all-inclusive rents Tenants whose energy consumption is cov- ered by all-inclusive rent need more trans- parency over their usage to ensure they do not get ripped o by landlords, a campaign group has said. Under guidelines issued by the Depart- ment for Business, Energy and Industrial Strategy (BEIS), landlords which charge an all-inclusive rent incorporating energy costs are "encouraged" to come to an agree- ment with their tenants on how to re‡ ect the Energy Price Guarantee in rent levels. BEIS says it is exploring a "full range of options to ensure this happens, including using the planned emergency legislation". According to Citizens Advice, 13% of private tenants pay for their bills as part of their rent. Dan Wilson Craw, deputy direc- tor at Generation Rent UK, tells Utility Week that applying the Energy Price Guarantee to these customers would be "quite compli- cated" and without more transparency over their energy usage, it would be hard for renters to negotiate a fair deal. He says: "It's a section of the market we don't know a huge amount about. A lot of the arrangements are quite informal. Ten- ants won't necessarily know their full rights so it can be hard to negotiate with land- lords in that situation." As well as calling on the government to impose a rent freeze, Wilson Craw suggests arrangements could be made so a tenant who pays an all-inclusive rent has access to the energy account for their property to see how much their usage is. He adds: "The fact that energy bills for these tenants are so opaque at a time when they are rising so fast makes it really hard to know if you are getting a good deal." Adam John, senior reporter Existing nuclear plants will be able to participate in future CFD auctions

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